Tuesday, November 20, 2007

Senators Urge Rigorous FTC Review of Google/DoubleClick Deal

This posting was written by John W. Arden.

The ranking Democratic and Republican members of the Senate Subcommittee on Antitrust, Competition Policy, and Consumer Rights have asked the Federal Trade Commission to examine the competition and privacy questions raised by Google’s proposed acquisition of DoubleClick.

In a November 19 letter to FTC Chairman Deborah Platt Majoras, Senators Herb Kohl (D-Wis.) and Orrin Hatch (R-Utah) reported the results of a September 27 subcommittee hearing on the proposed transaction, which would combine the world’s largest Internet search company (Google) with the leading company that places advertising on the Internet (DoubleClick).

“The implication for the Internet advertising market—and for the Internet as a whole—are profound and potentially far reaching,” the letter said. “A core part of Google’s business is placing contextual advertising—that is, text based ads placed on third party web sites which are relevant to the content or to the likely reader of the web site. Google has a dominant market position with respect to the placing of these contextual ads. DoubleClick has a leading market position in placing another form of Internet advertising—display advertising which also resides on third party web sites.”

Harm to Competition

Industry experts raised serious concerns that combining the two firms “could cause significant harm to competition in the Internet advertising marketplace.” Although the Senators have not reached a conclusion regarding the harm to competition, they advocated that the FTC approve the merger only on a determination that the merger would not cause any lessening of competition in Internet advertising.

“After our hearing, it is plain that the issues important to this determination are: whether contextual and display advertising are interchangeable and substitutable; the extent to which Google’s services compete with DoubleClick’s ad serving services; whether there are significant barriers to entry impeding new competitors in this market; and the likely effects of this acquisition on the cost of placing Internet advertising,” the Senators wrote.

Privacy Concerns

In addition to the antitrust considerations, the acquisition may raise broader questions involving Internet privacy. “In order to be effective, Internet advertising tracks the personal preferences of Internet users and “serves” ads most suited to that individual user based on his or her history of visiting certain web sites and running particular searches.”

DoubleClick collects an enormous amount of information on individuals’ web use preferences. Privacy advocates have expressed serious misgivings about this information coming under the control of Google, which can track individuals’ search requests.

Leading Positions

The Senators voiced concern that the acquisition would provide the world’s most important Internet enterprise with a leading position in the video content, news, advertising, and other consumer activities.

“Antitrust regulators need to be wary to guard against the creation of a powerful Internet conglomerate able to extend its market power in one market into adjacent markets, to the detriment of competition and consumers,” the letter concluded.

This letter comes on the heels of a November 13 announcement that the European Commission will investigate whether the proposed acquisition would significantly impede effective competition within the European Economic Area. Details about the EC’s announcement appear in a November 13 posting on Trade Regulation Talk.